Definiciones conceptuales de la variable de investigación

The current exploratory, quasi-experimental research examined sociodemographic and numerous financial characteristics that predict household banking practices in the United States. Drawing from a recent nationally representative dataset (i.e., the 2015 National Financial Capability Study), this study examined use of checking accounts, saving accounts, and alternative financial services (AFS) within diverse American households. Using a propensity score matching analysis, this study examined the effects of using AFS and payday loans in particular on household present and future financial security. The following paragraphs discuss the main findings within the context of relevant literature, followed by a review of limitations and contributions of the research. Then, suggestions for future directions are delineated and the implications of the findings for macro and micro policy, education, and research are discussed. A summary of the dissertation concludes the chapter.

Prevalence and Uniqueness of the Underbanked

One of the main findings of this study is that the underbanked group was sizable and distinctively different from both the unbanked and the banked groups. In fact, one in five individuals was underbanked, this latter group was five times larger than the unbanked group, a finding that is consistent with national estimates conducted by the Federal Deposit Insurance Corporation (Burhouse et al., 2013; 2016). Although the underbanked group appears to be a relatively large group, no study to date had singled out this group and systematically examined its profile, and compared the characteristics of the underbanked to those of the unbanked and banked groups. This is largely because current debate about financial inclusion has framed the issue as a problem being unbanked versus banked (Servon, 2017), an artificial dichotomy that excludes the underbanked group of individuals who have some type of connection to mainstream financial institutions, but also often use high-cost, high-risk AFS products (Birkenmaier, 2012).

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Existing research on financial inclusion has rarely focused on the underbanked group (e.g., Friedline, Despard, & Chowa, 2016; Grinsterin-Weiss, Yeo, Despard, Casalotti, Zhan, 2010; Rhine, 2006). Failing to identify the underbanked group likely has resulted in discounting the prevalence and magnitude of problems with financial access as well as has obscured the pervasiveness of the fringe economy within the U.S. households.

In addition, the results of the current study further showed that the underbanked group was distinctively different from the unbanked in terms of demographic characteristics and household financial circumstances. For example, as compared to their white counterparts, Asian Americans were more likely to be underbanked; however, there was no significant difference in likelihood of having a checking or saving account between the two groups. Previous studies have consistently shown that unmarried individuals are more likely to be unbanked (e.g., Rhine, 2006; Rhine & Greence, 2013); however, the current study indicated that marital status was unrelated to banking status. The distinct characteristics of the underbanked have been masked in the extant research, which routinely used the banked-unbanked analytical framework when examining banking practices. The distinct profile as well as notable size of the underbanked group that emerged in the current study emphasize the importance of expanding the current, limited

analytical framework to gain a more complete understanding of banking practices of individuals who are underbanked.

Bank Account Ownership

A number of findings are consistent with what has been documented in studies investing bank account ownership. Consistent with previous studies, the current study found that the unbanked group was overrepresented by individuals who were racial minorities (e.g., Barr, 2008;), lower-paid (e.g., Buckland, 2008), and unmarried (e.g., Rhine et al., 2006; Rhine &

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Greene, 2013), as well as poor credit records (Sprague, 2015) and received welfare benefits (e.g., Stegman & Faris, 2005). In addition, having health insurance coverage was associated with using either a checking or saving account, a finding consistent with previous work (Rhine & Greene, 2013). It is possible that health insurance coverage serves an important way for families to protect themselves against health shocks. In fact, past studies have shown that health insurance coverage showed mitigating effects on labor supply and family income (Bradley, Neumark & Motika, 2012), which could in turn help families open and maintain bank account.

Several findings emerged that were inconsistent with what has been established in the literature. For example, numerous studies indicated that racial minorities are disproportionately unbanked (e.g., Hogarth et al., 2003; Rhine et al., 2013). The current study found that the likelihood of being unabnked was not evenly distributed across racial minority groups, and that there was considerably heterogeneity in owning a bank account across groups. Specifically, Hispanic and Asian groups were not significantly different from the white group with respect to having a checking or saving account. The finding that not all minority groups were at risk of being unbanked suggests that financial circumstances of Hispanic and Asian groups, for example, may be linked to cultural factors that predispose them to use bank accounts. Prospective research is needed to identify the factors that are associated with having a bank account among diverse Hispanic and American households.

Previous studies have indicated that welfare recipients typically are unbanked (e.g., Stegman & Faris, 2005; O’Brien, 2012; Rhine & Greene, 2013). The current study suggests a more complex relationship may exist between welfare receipt and banking status. The results of the current study showed that receiving welfare benefits was unrelated to having a checking account, but was negatively associated with having a saving account. For welfare recipients, the

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lack of having a savings account most likely is related to current welfare policy that establishes limits on assets as part of the eligibility criteria for benefits (Sprague et al., 2016). The recent shift in delivery of benefits from paper checks to Electronic Benefit Transfer cards provides some measure of financial access and security, however, few states offer and encourage direct deposit or establish it as the default method of benefit disbursement (Sprague et al., 2016). Moreover, nearly all states set the amount of assets a family can have and still qualify for federal assistance, such as Temporary Assistance for Needy Families (TANF), which set the lowest asset limits among all means-tested program. For example, in 2013, the median asset limit for TANF was $2,000, and 9 states currently restrict TANF recipients to no more than $1,000 (Sprague et al., 2016). Research shows that these limits signal to TANF recipients that owning a bank

account could render them ineligible for benefit (Lim et al., 2010; O’Brien, 2008; 2012; Sprague, 2015). The stringent financial eligibility criteria and statutory and administrative barriers to holding a bank account often deter many low-income households and public assistance recipients from using bank accounts and services. Within this latter context, the finding that welfare receipt was negatively associated with having a saving account lends support to the interpretation that stringent asset limits likely prohibit recipients from using and maintaining a formal saving account.

Characteristics of AFS Users

A major goal of the current study was to examine four groups of AFS users in order to provide a comprehensive picture of demographic and financial determinants of AFS use. The following paragraphs discuss findings regarding four AFS user groups: auto title loan users, payday loan users, rent-to-own users, and pawnshop users.

115 Users of Auto Title Loans

The current study showed that auto title loan users tended to be female, African American, Asian American and middle aged. Individuals who were married with dependent children, full-time workers, and reporting annual incomes in the middle income quintiles also were overrepresented in this subgroup of AFS users also. In addition, use of auto title loan was associated with having a homeownership, receiving welfare benefits, experiencing income volatility experiences, and having a poor credit record, and have no health insurance coverage. While other fringe banking products such as payday loans have received considerable attention in the literature, the characteristics of auto title loan users are relatively understudied and less understood. The study by Fritzdixon, Hawkins, and Skiba (2012) is the only large-scale

empirical investigation of auto title loan users. Fritzdixon et al. (2012) found that auto title loan users were more likely to be middle aged, full-time workers, and home owners, and these groups of people were also tended to take out multiple title loans. It is possible that full-time

employment and home assets were associated with owning a car, which then allowed these individuals to obtain auto title loans.

The current study indicated that financial knowledge was unrelated to auto title loan use, which is inconsistent with the finding of Fritzdixon et al. (2012) showing that auto title loan customers were overconfident about their knowledge regarding auto title loan and overly optimistic about their ability to make timely payments. It is worth noting that Fritzdixon et al. (2012) did not examine actual financial knowledge of auto title loan users. Rather, Fritzdixon et al. (2012) compared self-reported estimates of length of time for loan repayment with the actual length of time recorded in existing general usage data. These authors subsequently concluded that title loan users may be persistently naive about their loan payment ability. The current study

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examined knowledge about the general financial concepts that did not include a focus either on participants’ understanding of auto title loans or their ability to repay them. Thus, prospectively designed studies are needed to assess knowledge specific to auto title use and examine its relationship to actual financial behaviors.

Although financial knowledge was not associated with auto title loan use, other important predictors of auto title use emerged in the current analysis. For example, income volatility and welfare receipt showed large, positive effects on both use of auto title loans and number of title loans taken out. These latter financial circumstances, which are linked to poverty, make auto title loan users vulnerable to unscrupulous lending practices (Karger, 2007). The extant research consistently shows that poverty and financial hardship contribute to the use of fringe economy vendors (e.g., Karger, 2007; Shobe et al., 2013; Martin & Longa, 2012); however, few studies have focused on auto title loans in particular. The current study presents initial empirical evidence that financial circumstances associated with poverty predict use of auto title loans, thereby enhancing current understanding of users of different AFS products.

Payday Loan Users

The current study showed that payday loan use was associated with being females, young, African Americans, and unmarried. Those who were employed part time with the lowest income and who showed low levels of financial knowledge also were likely to use payday loans. These latter characteristics emerge in previous studies of payday loan users (e.g., Bertrand & Morse, 2011; Elliehausen, 2009; Lawrence & Elliehausen, 2008; Lim et al., 2014; Stegman, 2007). Welfare receipt showed a notably large impact on payday loan use, which is consistent with previous studies indicating that recipients of public assistance were three to five times more likely than nonrecipients to use payday loans (e.g., Caplan, Kindle, & Nielsen, 2017; Martin &

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Longa, 2012). As compared to individuals in the highest income quintile, only those in the lowest income quintile were significantly more likely to use payday loans. Taken together, these findings imply that welfare recipients may be rational decision makers who simply piece

together a safety net from the various income-generating possibilities available (Kindle & Caplan, 2015).

Several findings of the current study are inconsistent with existing knowledge about payday loan users. For example, previous research has shown that medical debt is positively associated with payday loan debt, and that individuals with medical debt tend to borrow from payday lenders to cover medical expenses (e.g., Bickham & Lim, 2015; Gary & Villegas, 2012). The current study showed no association between health insurance coverage and either payday loan use or number of payday loans. On the one hand, this could be because the health insurance plans held by payday loan users had limited coverage and failed to function as a financial buffer as expected. Thus, having a health insurance coverage may not be sufficient for individuals who incur high medical costs or unexpected health shocks, and are compelled to borrow from payday lenders. On the other hand, the lack of health insurance may be an artifact of being unemployed. Future research should therefore consider collect specific information about particular health plan benefits and medical related expense and debts to gain a better understanding regarding how health insurance coverage affects use of payday loans.

In addition, several findings contradict assumption about payday loan users. For example, there is a common belief that AFS users including payday loan users overrepresent among those without traditional bank accounts (e.g., Barr, 2002; Birkenmaier & Fu, 2016, FDIC, 2014). Findings from the current study showed that bank account ownership had no significant association with payday loan use, suggesting a more complex relationship between these

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variables, and that reasons for not having a bank account do not fully overlap with the reasons for using payday loans. One possible explanation is that bank accounts do not function in a way that fulfills the transaction and credit needs of payday loan users. Prior research has shown that prohibitive banking policies deter consumers from maintaining bank accounts (e.g., high balance requirement, rising overdraft fees, Baradaran, 2015), whereas individuals use payday loans because they are easy and quick transanctions that do not require a substantial credit records (Servon, 2017).

Lastly, previous studies have shown that individuals who are low-income and cash strapped use payday loans to obtain cash for bill payments and financial emergencies (e.g., Gross, Hogarth, Manohar, & Gallegos, 2012; Karger, 2005; Lim et al., 2014). It is plausible that a substantial number of low-to-moderate income families experience income volatility, and that their financial distress and uncertainty make payday loans more appealing than formal bank loans; however, few studies have examined income volatility and its relationship to payday loan use. Income volatility and payday loan use is an increasingly important focus of research, given that current stagnant wages and increased financial uncertainty experienced by working-class families (Morduch & Schneider, 2017). The current study is the first to provide preliminary empirical evidence that income volatility has a substantial impact on both the use of payday loans and the frequency of payday loan use. This latter finding sheds light on how financial uncertainty may affect individuals’ financial behavior, and the way they manage personal finance.

Pawnshop Users

The current study indicated that pawnshop users tended to be female, unmarried, middle aged, and from racial minority groups. Those who were less educated, lower paid, and part-time

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workers also were overrepresented among pawnshop users. In addition, the use of pawnshop was positively associated with receiving welfare benefits, experiencing income volatility, having a poor credit record and low financial knowledge, and being unbanked without health insurance coverage. Although pawnshops have provided short-term cash lending to consumers for decades, research on pawnshop users is scant. The study by Bos, Carter, and Skiba (2012) is the only available investigation of pawnshop services and users in the United States. Findings of the current study are somewhat consistent those of Bos et al. (2012), who showed that pawnshop borrowers were most likely to be women with child rearing responsibilities who were

experiencing in both employment and marital instability.

Bank account ownership was found negatively associated with pawnshop use and frequency of pawnshop use. This finding is consistent with previous studies showing that those who are unbanked are more likely to use various AFS products; however, no study has

specifically examined pawnshop use. Similar to payday loan users, pawnshop users were more likely to be welfare recipients and those who experienced income volatility. These latter characteristics suggest that pawnshop users may live in relatively unstable financial situations with numerous constraints. However, empirical knowledge about pawnshop products and its users is scarce; and additional research is needed to shed light on this oldest financial institution and its consumers in the context of the modern fringe economy.

Rent-To-Own Users

The current study showed that those who use rent-to-own (RTO) stores were likely to be middle-aged, female, African American, and be employed part time. Those with less than high school education and dependent children were overrepresented among RTO users. In addition, RTO use was associated with receiving welfare benefits, being unbanked, experiencing income

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volatility, as well as having no health insurance, a poor credit record, and low levels of financial knowledge. Some of these latter findings are consistent with those of existing studies indicating that African Americans (Elliehausen, 2005), having dependent children (Lacko, McKernan & Hastak, 2000, 2002), and low levels of educational attainment (McKernan, Lacko, & Hastak, 2003) predict whether individuals use RTO. It is notable that although research has investigated the RTO industry and its products (Anderson & Jaggia, 2009; 2012; Hawkins, 2007), descriptive examining RTO users are scarce and mostly descriptive.

The current study adds to the limited knowledge about RTO users by identifying several predictors of RTO product use that have not emerged in previous research. For example, both welfare receipt and income volatility were found to have a substantial positive impact on both RTO use and frequency of RTO use. In addition, having a poor credit record was positively associated with RTO use. Taken together, these findings provide a preliminary profile of RTO users, suggesting that RTO users are concentrated among the poor who are likely to experience unexpected income drops, and unstable financial circumstances. The design and features of the services and products offered at RTO stores may be especially attractive to individuals who are relatively poor and financially unstable. RTO stores typically provide easy access to households goods for a periodic fee with no credit check or down payment (Shobe et al., 2013). RTO agreements typically can be terminated by users at any time without further financial liability, a feature that may be well suited to individuals who are in a transient or unsettled living situations, or who have unstable incomes (Shobe et al., 2013).

Impact of Payday Loan Use

Using propensity score matching (PSM) as a main analytical approach, this study

examined effects of payday loan use on household financial well-being. PSM methods were used to balance data by matching payday loan nonusers to payday loan users based on the probability

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of using payday loans, in order to reduce selection bias and to yield a more accurate estimate of the treatment effect (Guo & Fraser, 2010), which in this case is use of payday loans. Existing studies on the impact of AFS use have solely focused on payday loan use, and the findings are somewhat mixed. Furthermore, it is important to note that the research examining the effects of payday loan has primarily focused on access to payday loans, rather than actual use. Thus, the